FRANKFURT/HONG KONG (Reuters) - Indian car wiring maker Motherson Sumi Systems Ltd (MOSS.NS) is in early talks with German peer Leoni AG (LEOGn.DE) over a possible merger of the pair, two people close to the matter said.

FILE PHOTO: Employees of Motherson Sumi Systems Ltd, work on a car wiring assembly line inside a factory in Noida on the outskirts of New Delhi, India April 28, 2016. REUTERS/Anindito Mukherjee

The car industry and its suppliers, facing a regulatory crackdown on diesel emissions and a slump in China, have issued a slew of profit warnings in recent months and companies are shaking up their businesses in order to adapt.

Motherson Sumi has snapped up a number of companies in recent years, adding to its range of automotive interior products including rearview mirrors, wiring harnesses and rubber and plastic components.

The company, a joint venture between India’s Samvardhana Motherson Group and Japan’s Sumitomo Wiring Systems (5802.T), has been scouting for a sizeable acquisition target in Europe with the help of an investment bank.

Any deal with Leoni could be worth more than 1 billion euros ($1.1 billion) but financing still needs to be worked out, one of the people said. The exact deal structure was still unclear, and deliberations may not succeed, the sources added.

An acquisition of Leoni would add to Motherson Sumi’s 180 facilities across 37 countries and bolster overseas sales.

Motherson Sumi, which counts several global automakers including Daimler AG (DAIGn.DE) and Volkswagen AG (VOWG_p.DE), as clients, informed the Indian stock exchange on Friday that it keeps “examining and evaluating” business opportunities globally and it would make necessary disclosures when needed.

Leoni declined to comment.

Shares in Leoni, which has a market cap of $7.1 billion, ended up 18 percent on Thursday in their biggest one-day gain in nearly a decade. The stock has slumped more than 50 percent this year as demand stagnated, with Leoni citing rising global trade tensions and stricter emissions rules for slowing business.

Shares in Motherson Sumi rose as much as 10.8 percent on Friday, and was trading up 2.3 percent by 0844 GMT.

Motherson Sumi most recently acquired Reydel Automotive, which manufactures door panels and cockpit modules, for about $200 million to help meet its target of not having any component, customer or country contribute more than 15 percent to its business by 2020.

Parent company Samvardhana Motherson is one of the world’s fastest growing specialized automotive component manufacturers, recording a turnover of $10.5 billion in fiscal 2017/18, according to Motherson Sumi’s latest annual report.

Cable and wiring system specialist Leoni brought in Aldo Kamper as its chief executive in September. After cutting its 2018 targets, the company is undertaking a comprehensive restructuring program.

Analysts at Berenberg said in August that although Leoni had a large order backlog, it needed to improve its cost structure, with additional expenses likely to hurt 2019 earnings.